Why I Love Trading Options
For me, options are arguably the greatest instrument ever invented for the financial markets, or for finances in general.
The beauty of options lies in their ability to provide incredible risk control. From a purely practical position, options provide numerous advantages.
They allow for detailed risk management, crafting scenarios with improved odds that target exactly what you want, and can even be used to hedge against existing stock positions.
This flexibility makes options a crucial tool for both conservative and aggressive investors, making them indispensable for modern financial markets.
Contrary to popular belief, they allow for amazing risk-reward ratios that you can’t achieve anywhere else. This typically involves using spreads, which, although complex, offer superior control over risk and potential returns.
There’s a big misconception in the investing world that spreads are an advanced concept, but I argue they should be the first lesson for beginners.
Understanding basic credit and debit spreads enables trading with superior risk-reward ratios and actually significantly lower risks.
For example, while some were spending thousands on NVIDIA call options, I managed to trade with just $200 using a spread, achieving excellent risk-reward.
Spreads also allow for the balancing of decay, setting up situations where time decay doesn’t eat away at your option premium in the same way it would if you just bought straight up calls or puts.
This capability to cap your risk completely is powerful, allowing trades like a $500 NVIDIA option with targets of $1500 to $3000 without tying up substantial buying power or taking on the full risk of stock ownership.
For example, in our Profit Pair trades, we can trade in different directions with a pretty high probability, even if the sector or the entire market moves a ton.
Let’s say we go long on Apple and short on Nvidia using options. Well, if Apple goes up 20% and NVDA goes down 20% then great!
But let’s say they both go up 20%… if you bought shares on Apple and shorted shares on NVDA, then you’d basically be screwed.
But if we had a call on Apple and a put on NVDA and they both go up 20% then obviously we’d lose 100% on the put option but would likely make 500% on the call option. So we’d be sitting on a pretty solid gain.
So, for me, options are mostly about risk and the pairing of risk to reward more specifically and that’s the aspect of them that I’ve fallen in love with.
In essence, my love for options is rooted in their ability to finely tune risk and enhance reward probabilities.
They provide numerous strategic advantages, from lowering overall market risks to setting up favorable probabilities and even hedging against stocks that we may own.
These are just a few of the reasons why I believe options are the most effective financial instruments in the markets.
— Nate Tucci
P.S. Be sure to catch my Ford vs Tesla presentation on Monday at 1pm Eastern by registering your spot right here!
